Commissioner of Income Tax vs Sundaram Clayton Ltd.

Sethuraman, J.—In these two references, the following common question of law has been referred to this court:

"Whether, on the facts and circumstances of the case, the income received by the assessee by way of sub-contracts and sale of scraps amounting to Rs. 6,472 for the assessment year 1968-69 and Rs. 48,302 for the assessment year 1969-70 should be considered as relatable to priority industry and hence as qualifying for deduction u/s 80-I of the Income Tax Act, 1961 ?"

The assessee is a company carrying on the business in the manufacture and sale of air-compressor equipments for automobile vehicles. It had taken sub-contracts from various other companies connected with the manufacture of automobile spare parts, and sold scraps, being the by-product of its manufacturing activities. The original assessment on the asses-sec for the assessment years 1968-69 and 1969-70 were made on March 31, 1971, and April 2, 1971, respectively, allowing the relief u/s 80-I with reference to the income from the sub-contract also. Subsequently, the ITO was of the view that the relief u/s 80-I had been granted not only on the income relating to the priority industry but also on the income from non-priority industry. He issued notices to the assessee proposing to rectify the assessment. Subsequently, the ITO passed orders rectifying the assessments for the assessment years 1968-69 and 1969-70. In doing so, he granted relief u/s 80-I only on Rs. 3,96,775 computed as the income relating to priority industry for the assessment year 1968-69. Similarly, for the assessment year 1969-70, the relief was granted only on a sum of Rs. 1,97,154. The assessee appealed to the AAC contending that the ITO was not justified in treating Rs. 6,472 and Rs. 38,388 as income relatable to a non-priority industry. The AAC accepted the assessee''s submissions holding that the relevant amounts were relatable to a priority industry. The department appealed to the Tribunal. But the Tribunal confirmed the order of the AAC. The matter has now been brought on reference to this court at the instance of the Commissioner of Income Tax.

The construction of Section 80-I has been examined by the Supreme Court in Cambay Electric Supply Industrial Co. Ltd. Vs. The Commissioner of Income Tax, Gujarat-II, Ahmedabad, . Their Lordships noticed the distinction between "attributable to" and "derived from", and expression occurring u/s 80-I is "attributable to", which has been considered as wider than "derived from". Hence, as far as the sale of scrap is concerned, there can be no dispute that it was one attributable to a priority industry as it is a by-product out of the manufactured items coming within the scope of a priority industry. There- fore, applying the law laid down by the Supreme Court, we hold that the Tribunal acted properly in allowing the relief to the extent of the sale of scraps.

We have to now deal with the question in so far as it relates to the income arising from the sub-contracts. Subsequent to the above decision of the Supreme Court, we had occasion to consider the matter in the light of the decision of the Supreme Court in Commissioner of Income Tax, Tamil Nadu-V Vs. Universal Radiators P. Ltd., . In that case, the claim of the assessee related to, (1) income from lease of, machinery, (2) income from export incentives, and (3) the interest on money deposited in a bank, which was found to be surplus to the requirements of the assessee in relation to the priority industry. It was held, in dealing with the lease arrangement, that the assessee may run the industry himself or may have it run by another and that even when the machinery would be leased out, so long as the lease arrangement was only with reference to an item falling within the category of priority industry, the income arising from the leasing of the machinery would be attributable to a priority industry. Similarly, the export incentives received were also treated as attributable to the priority industry. But, as far as the interest income was concerned, it was held that the amount had been deposited in a bank, just as any other assessee might have, and that there was no vital link between the deposit and the priority industry. The interest income was, therefore, excluded from the relief available u/s 80-I.

The learned standing counsel contended that the income arising from the sub-contracts will have to be treated in the same way as the interest income in the case discussed above. We are unable to accept this submission. From the narration of facts, it would be clear that the sub-contracts were only with reference to the items coming within the scope of a priority industry. Therefore, the link between the priority industry and the income of the sub-contracts has been established in the present case. The income would thus fall within Section 80-I. The result is, the question referred to this court is answered in the affirmative and in favour of the assessee. There will be no order as to costs.